ECB plays down fresh crisis fears

THE European Central Bank has held its main refinancing rate at a historic low of 0.75 per cent, playing down concerns that political gridlock in Italy could trigger a resurgence in the debt crisis.

The ECB's policy-setting governing council discussed a possible cut in interest rates at its regular monthly meeting, but the consensus was to hold them steady, ECB chief Mario Draghi told a news conference that followed the decision on Thursday.

"Yes, we discussed the possibility of doing it. But the prevailing consensus was to leave rates unchanged," Draghi said.

With inflation in the 17-country eurozone currently expected to remain in line with the ECB's goal of close to, but just under, 2.0 per cent, "this will allow our monetary policy stance to remain accommodative", Draghi said.

And the central bank's policy stance "will remain accommodative as long as needed", he insisted, apparently hinting the ECB could cut rates further if required.

Draghi downplayed concerns that the political deadlock in Italy could destabilise the single currency area as a whole and reawaken the sovereign crisis which appears to have abated in recent months.

"If we look at contagion, you've seen that the contagion to other countries has been muted this time, contrary to what might have happened about a year-and-a-half ago," Draghi said.

The ECB chief unveiled the bank's latest updated staff projections for growth and inflation for the single currency area, which now see the eurozone economy contracting by 0.5 per cent in 2013 before recovering to grow by 1.0 per cent next year.

The previous forecasts in December had pencilled in a contraction of 0.3 per cent this year and growth of 1.2 per cent in 2014.

The bank also slightly pared its inflation forecasts for 2014, leaving its estimate for this year unchanged at 1.6 per cent.